Government shutdown has cost US economy $1.5bn a day, S&P says

The government shutdown has so far cost the US economy $24bn – or $1.5bn a day, ratings agency Standard & Poor’s said on Wednesday.

The argument over the government shutdown, now in its 16th day, and over raising the US’s debt ceiling, appeared to have come to a short-term resolution Wednesday as Congress rolled out a plan to fund federal agencies and extend America's borrowing authority into early next year.

The news of the deal boosted stock markets. S&P warned, however, that the political impasse had shaved at least 0.6% off US GDP on an annualized basis for the fourth quarter of 2013. The cut is equivalent to taking $24bn out of the economy.

S&P triggered selloffs on stock markets around the world in 2011 when it downgraded US debt during the previous row over raising the debt ceiling. This week rival Fitch warned that it, too, had turned negative on US credit and was considering a downgrade.

S&P said it expected the Congress would pass the Senate resolution to fund the federal government and raise the debt ceiling.

“However, the current chatter coming out of Washington suggests that any continuing resolution will be a temporary one, with an early 2014 timeframe for the next set of Washington deadlines. The short turnaround for politicians to negotiate some sort of lasting deal will likely weigh on consumer confidence, especially among government workers that were furloughed,” the agency said.

“If people are afraid that the government policy brinkmanship will resurface again, and with it the risk of another shutdown or worse, they'll remain afraid to open up their checkbooks. That points to another humbug holiday season,” the agency said. “The bottom line is the government shutdown has hurt the US economy.”

US markets rebounded on news of a deal in Washington. The Dow closed up 205 points (1.36%), the S&P 500 rose 23.45 points (1.38%) and the Nasdaq 45.42 points (1.2%). Markets had fallen Tuesday when it appeared that a deal was out of reach.

In a note to investors Paul Ashworth, the chief US economist at Capital Economics, wrote: “Financial markets have been buoyed by media reports indicating that both the Senate and the House are preparing to vote imminently on a bill to reopen the federal government and raise the debt ceiling.

"Once the initial euphoria has worn off, however, we suspect that investors will begin to focus on the short-term nature of the deal, which means that another shutdown is possible early in the New Year.”